Guest Post: The Real 2013 Cliff

There’s a much bigger cliff than the so-called fiscal cliff. The absolute worst result of the fiscal cliff would be a moderate uniform tax increase at a bad time, resulting in a moderate contraction. It is an obvious - but ultimately rather cosmetic - stumbling block on the so-called “road to recovery”.

The much bigger cliff stems from the fact that the so-called recovery itself is build on nothing but sand. This is a result of underlying systemic fragilities that have never been allowed to break. I have spent the last year and a half writing about this graph — the total debt in the economy as a proportion of the economy’s output:

This is the bubble that won’t go away. This is the zombified mess that the Federal Reserve won’t let dissolve (as happened regularly in the 19th century and early 20th century each time there was an unsustainable debt bubble). This is the shifting sand — preserved by the massive monetary stimulus programs — that the so-called recovery is built upon. During the 1980s and 1990s and 2000s cheap money pumped up the debt level in America. In 2008, the bubble burst, and the hyper-connective fragile financial system was set to burn. Then central banks around the world stepped in to “stabilise” (or as Nassim Taleb puts it, overstabilise) the financial system. The unsustainable reality of debt vastly exceeding income was put on life support.

A high pre-existing residual debt level makes growth challenging, as consumers and producers remain focussed on paying down the pre-existing debt load, they are drained by pre-existing debt service costs, and they are wary about taking on debt or investing in a weak and depressed environment. It’s a classic Catch-22. The only true panacea for the depression is growth, but the economy cannot grow because it is depressed and zombified. That’s where a crash comes in — the junk is liquidated, and clearing the field for new growth. That is what Schumpeter meant when he talked of “the work of depressions”, something that many mainstream economists still fail to grasp. (In fairness, a similar effect can probably be achieved without a depression through a very large scale debt relief program.)

Japan has been stuck in a deleveraging trap for twenty years, to no avail, all that has really occurred is that the private debt load has been transferred onto the central bank balance sheet — there has been very little net deleveraging) and while the Japanese central bank has completed round after round of quantitative easing — sustaining and preserving the past malinvestment and high debt load — the Japanese economy is still depressed.

The zombie financial sector is the real cliff — as interconnective as ever, as corrupt as ever, and most importantly, nearly as leveraged as ever:

This is a reinflated bubble built on foundations sand. I don’t know which straw will break the illusion (middle eastern war? Hostility between China and Japan? Chinese real estate and subprime meltdown? Student debt? Eurozone? Natural disasters? Who knows…) but this bubble poses a far greater threat in 2013 than the fiscal shenanigans and the Boehner-Obama “Boner-Droner” snoozefest.

The Kardashev scale is a method of measuring a civilization's level of technological advancement, based on the amount of energy a civilization is able to utilize. The scale has three designated categories called Type I, II, and III. A Type I civilization uses all available resources impinging on its home planet, Type II harnesses all the energy of its star, and Type III of its galaxy. The scale is only hypothetical and in terms of an actual civilization, highly speculative; however, it puts energy consumption of an entire civilization in a cosmic perspective. It was first proposed in 1964 by the SovietastronomerNikolai Kardashev.

Zimbabwe, actually, the problem being that we are a fully urban-industrial society, while they are still mostly rural. We are too removed from the land, in other words, to go through hyperinflation without going through hell.

So sad, but yet so beautiful. The passion and the sexual energy between them. The way they looked into each others eyes. I love the scene where he rushes back into town and french kisses him against the wall.. so hot. God I love that movie. Fiscal what?

That's why austrian's are so much against artificial credit expansion by central planners beyond the productive capacity of the economy to support it. Because it is gonna be bad for all no matter what in the Value deleveraging phase even if value loss is masked by nominal increases.

Even if Dear Leader forgave my student loans and morgtage, I still wouldn't vote for him in 2016. (Yes, I know there is that 22nd Amendment which limits a President to two terms. But, nobody, especially the political class, seems to give a damn what the Constitution says anymore.)

Re-inflate the bubble to create the "weath effect". That is all they know how to do. The probem is each bubble has done nothing but concentrate the resulting "wealth" into fewer hands each time.

Sure the mega millionaires have done great since 2009. A local high end mens store by me has never done better business. The problem is that is just one store with five employees that sells a few couple thousand dollar suits a month, not exactly volume business.

There have been so few people that have benefitted from the "Great Recovery" that the net effect on the economy has been negative. The wealthy are hoarding wealth, and could not spend all their gains if they tried.

You need 100 million people spending a thousand dollars on stuff, not a handfull of people spending a couple million. Even 1000% gains in the stock market on a average persons invested savings, would only lst them a year or so if they lost their job. Not exactly a path to wealth.

From John Hussman last night: "there’s some talk of the Senate passing a bill and sending it to the House, though this would seem to violate Article I Section 7 of the Constitution, which requires all bills for raising revenue to originate in the House. "

While we approach the 11th hour of fiscal cliff bullshit by fear, it’s time to roll out the new US Basel III banking rations. This is the real core of sundry MSM [drama queen] propaganda inventions thru topic avoidance. /LOL

As for the 2012 "CLIFF" (Crappy Legislators In Full-on FuckStickness)......

An unknown source from a reliable member of a senate team player who has an advisor says that they are in fact talking and that talking is going to lead to a conversation where they will speak about a solution. And on that news, the DOW is moving higher.

This will break when they want it to break. The sharade of printing money and giving it to themselves can continue for quite some time. The throttle on the economy that seems to make an instant difference is gasoline prices. As this is yet another manipulated market, it appears that the point of raising and lowering gas prices is to keep the economy exactly where it is: In suspended animation. Used as cover for continued printing of trillions for themselves. This game could continue for a long time.

The CB’s have all the paper, all the electrons and all the shills in the world to keep their Ponzi going forever for those who stack paper and electrons.

I was thinking about how the evil might play out and one hypothetical had the real precipice at the point where London, the Fed and exchange bullion were leased out to the point that they only had their theater props of gold and silver veneer bars of tungsten and lead left that could not be shipped out to be recast as kilo bars by the East.

I used to ignorantly assume America would be remembered as a haven for freedom and rights. Now it looks like we'll be remembered for crashing world economies with our fiat currency and colossal Ponzi schemes. I've been reading up on the coming Agenda 21 and that's not exactly instilling confidence either.